Income Tax Alert: Govt Will Remove All Exemptions; NRIs Will Be Forced To Pay Income Tax!
How Did This Happen?
On Sunday, Nirmala Sitharaman said that Non-resident Indians (NRIs) working in income-tax-free jurisdiction such as the UAE will have to pay tax only on their income generated in India, and not on their earnings outside the country, finance minister.
Finance Minister Nirmala Sitharaman said the government intends to remove all I-T exemptions in the long run.
It is expected that this move will potentially affect those Indians residing in countries such as the United Arab Emirates and Bahrain where no income tax is payable.
To Whom This Rule Be Applicable?
According to the reports, the Modi government has also sought to tighten the definition of who will be considered an NRI to bring more such individuals under the tax net.
It is envisioned that this move is likely to generate widespread opposition from the diaspora, which the government has so far aggressively wooed.
The budget documents read “An Indian citizen who is not liable to tax in any other country or territory shall be deemed to be resident of India,”.
Which effectively makes these citizens liable to be taxed in India while reducing the number of days a person can stay in India in a year and still be considered an NRI.
How To Avoid This Tax?
The memorandum that is part of the budget documents said defending the move “It is entirely possible for an individual to arrange his affairs in such a fashion that he is not liable to tax in any country or jurisdiction during a year. This arrangement is typically employed by high net worth individuals (HNWI) to avoid paying taxes to any country/ jurisdiction on income they earn,”.
It added “Tax laws should not encourage a situation where a person is not liable to tax in any country. The current rules governing tax residence make it possible for HNWIs and other individuals, who may be Indian citizens to not to be liable for tax anywhere in the world,”.
How Does This Proposal Will Affect The NRIs?
According to Amit Maheshwari, managing partner at Ashok Maheshwary and Associates LLP, the new proposal means that citizens who are not residents in India would be liable to tax in India on their global income.
He also said that individuals who leave the country for employment are considered non-resident if their stay in India is less than 183 days.
Also, the time limit of 183 is now proposed to be reduced to 120 days.
He pointed out, adding that residents who don’t pay taxes in other countries will be taxed in India saying “Hence, the non-residents are being cornered from two different sides wherein being stateless would lead to them becoming resident in India. Hence, to qualify as non-resident, they would have to ensure that they remain tax resident of any other country and they should be out of India for at least 246 days,”.
While defending the government’s move, in a post-budget press conference, Revenue Secretary A.B. Pandey said the government has found instances in which some people are residents of no country in the world and hence escape paying taxes anywhere.
He added, “So, in case of these Indian citizens, their worldwide income will be taxed in India,”.
Although, this tax proposal has predictably generated opposition from residents in the middle-eastern countries.
Atul Pandey, a resident of Dubai said “Soon after the news flashed, there was ambiguity as to what it meant and what the outcome will be. How can the government tax us when we are working in Dubai? This is a very bad move,”.